Just before Jackson Hole

Last Friday the greenback hit a new high for 2021 against the single currency, pushing it down to 1.1664. But the US currency could not maintain its upward trajectory. Despite the still prudent position of Jerome Powell, according to the minutes of its most recent monetary policy meeting the US Federal Reserve may start tapering off its bond purchases, thereby reducing its support for the US economy by the end of the year. Nonetheless, the members of the Federal Open Market Committee remain divided as to when precisely this process should start, with some members favouring an imminent start in September and others preferring to hold off a while longer, in order to reap the benefits of additional economic data yet to be published. The latter are therefore disposed to waiting until the first quarter of next year. This lack of a consensus reined in the rampancy of the greenback, which fell below US 1.1700 to the Euro. Now eyes are turning towards Jackson Hole, Wyoming, which hosts an annual gathering of central bankers. Their summit is to be held from 26 until 28 August. The most eagerly awaited event will be Jerome Powell’s presentation on Friday 27 August on monetary normalisation strategy. Having failed once to give any clarity, the Fed’s Chair could provide further indications as to the timing of the tapering.

The EURCHF is stabilising at just above 1.0700, after recording a new low for the year of 1.0696 on Thursday last. Despite the situation in Afghanistan which remains tense and the continued spread of Delta variant, the Swiss Franc’s attractiveness as a safe-haven currency has been curtailed by the intervention of the Swiss National Bank, thereby protecting it from increased volatility and more importantly an increase in value. The aggregate amount of sight deposits with the Swiss National Bank increased by approximately 350 million Swiss Francs from 714.6 billion to 714.95 billion over the week ending on 20 August. This increase, which represents a slowdown on the previous two weeks, shows however that the SNB is still primed to defend against any upward movement in the Swiss currency’s value beyond 1.0700.

From a strictly economic perspective, the Euro zone continues to see the acceleration in economic growth which has been occurring since the beginning of the year. GDP grew by 2% in the second quarter (compared to growth of -0.30% in the previous quarter) on the back of COVID-19 vaccination campaigns and the lifting of public health restrictions. Over the year to July, inflation increased by 2.2%, representing a rise of 0.3% from June. In the United States, industrial production increased by 0.9% in July (compared to an increase of 0.4% in June), supported in particular by automobile production. The opposite was however true for China, where industrial production and retail sales slowed down in July. Exports fell and a resurgence of Covid-19 disrupted economic activity. Better news came in the form of the reopening of the Meishan container terminal, which is China’s second-largest port in terms of volume and had been closed for the last two weeks.

After an end of week characterised by more or less continual downward trends, as a result of demand-related concerns due to the resurgence of the pandemic, which pushed the WTI crude price down by approximately 10% from USD 67.23 on Wednesday to a low of USD 61.80 on Friday, the price of black gold started the week with an increase on Monday. This rise was due to increased optimism on the part of investors with regard to Chinese demand, thanks to Peking’s announcement that there had been no new cases of in-country transmission of Covid-19. In the wake of the rebound in the prices of crude and raw materials in general, the Australian Dollar, Canadian Dollar and New Zealand Dollar all rallied after their sharp fall at the end of last week.

Stock market performances have varied greatly over the last five days. Although market indices are generally trending slightly upwards in the United States, in Europe they are tending downwards. Asia is split, with the Nikkei posting a positive performance whilst Shanghai and Hong Kong are very slightly down. But the performance of stock markets remains overall outstanding, within indices having gained between 10 % and 20 % in Europe and the United States since the beginning of the year. Here Asia is once again somewhat behind trend, with the Shanghai and Hong Kong indices down 6% and the Nikkei up by just 1%.

The main item on the agenda for the upcoming days is of course the Jackson Hole summit (beginning tomorrow), which will be a focal point for markets still searching for clarity on future US monetary policy, which is everyone’s most pressing concern these days.

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